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Mobile Floor Prices – A Regressive Step

Floor Pricing
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The Telecom Regulatory Authority of India (TRAI) last month released a consultative paper seeking views on a variety of issues being faced by the sector, including whether or not to fix a floor price for mobile services. This has been one of the key demands of the industry, especially after the Honorable Supreme Court judgment in the AGR case. While the industry by and large has welcomed the idea, the very idea of fixing floor price is a regressive step in a growth economy with huge untapped potential.

The oft-cited justification for fixing floor tariffs is to ensure that the current woes of the industry get contained and the ills of ‘free calls’ do not continue to hurt the sector. If the proposal is accepted by TRAI, it will mean an end to ‘free calls’ and deeply discounted data tariff regimes, a move that will have severe long-term implications, not just for the sector but for the entire Indian economy.

The telecom industry argues that it is currently saddled with a total debt in excess of Rs 8.4 lakh crore, which includes the Rs 1.4 lakh crore arising due to the AGR judgment. However, if one were to examine the AGR judgment, it is clear that the players themselves were to blame for the delay in payment. The apex court, in the judgment, chastised the telecom players for indulging in delaying tactics:

Demand had been raised way­-back in the year 2003,   which   is   ultimately   the   subject­ matter   of   the   lis.   As the objections are baseless and wholly untenable, it cannot be said  that there was a bona fide dispute concerning various items. The disputes raised could not be termed to be bona fide at all. They were justified in order to delay the liability and the payment in accordance with the agreement.
-Supreme Court of India, Union of India vs Association of Unified Telecom Service Providers of India Etc.

In response to the judgment, the industry associations joined cause with the players to seek relief from the government, which, amongst other measures, included fixing a floor price for mobile tariffs.

In addition, the Department of Telecom has called upon vertical-specific players such as Powergrid, Railgrid and Gail to cough up another Rs 1.72 lakh crore of unpaid dues, following the Supreme Court Judgment.

The telecom industry has only itself to blame for the mess it finds itself in. And instead of looking at commercial solutions, the players have resorted to seeking government intervention to solve their woes. Remember these are the very players who oppose any form of preferential treatment to the public sector telecom companies -BSNL and MTNL, arguing instead about the ‘survival of the fittest’.

Another impact of this floor price plan could mean that many of the existing 2G and 3G subscribers will have a tougher time moving to 4G, due to much higher tariff. While the industry may not worry about it in the short run, it is a medium and long-term, it is a problem for them as well, since data consumption, one of the biggest revenue generators in the 4G regime, will hit a bump. This bump is likely to accentuate the problem as and when commercial 5G kicks off, possibly in the next two years.

One solution could be to have a limited time frame for the floor pricing, till the industry attains some sort of financial stability. However, the industry has to agree to the time frame and then go back to free market pricing after the period. In any case this is likely to favor the current troubled companies and could be unfair to new entrants like Jio, who have sufficient cash chests to ride out the situation.

Ultimately one does not see much of a difference between the private players and PSUs as far as handling the sectoral nuances is concerned. The default option continues to be to run to Big Brother for a handout.

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